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Yellen: rates to stay low even as economy recovers

Investing.com - The Federal Reserve will keep benchmark interest
rates low even as the economy improves to ensure sustained
recovery, as a persistent slackness in the labor market will
require low borrowing costs, Fed Chair Janet Yellen said
Tuesday.

Monetary authorities hope to see the unemployment rate at the
end of 2016 reaching 5.2-5.6% and inflation at 1.7-2%, Yellen
said.

"If this forecast was to become reality, the economy would be
approaching what my colleagues and I view as maximum employment and
price stability for the first time in nearly a decade. I find this
baseline outlook quite plausible," Yellen said in prepared remarks
in a speech she delivered at the Economic Club of New York.

In the meantime, markets should pay close attention to inflation
and unemployment rates, as hiccups can serve as weather vanes when
it comes to monetary policy and how long interest rates remain
low.

"The larger the shortfall of employment or inflation from their
respective objectives, and the slower the projected progress toward
those objectives, the longer the current target range for the
federal funds rate is likely to be maintained," Yellen said.

"This approach underscores the continuing commitment of the FOMC
to maintain the appropriate degree of accommodation to support the
recovery. The new guidance also reaffirms the FOMC's view that
decisions about liftoff should not be based on any one indicator,
but that it will take into account a wide range of information on
the labor market, inflation, and financial developments," Yellen
said, referring to the Federal Open Market Committee, the U.S.
central bank's monetary policy group.

The fed funds rate currently stands at a rock-bottom
0.00-0.25%.

The Fed is also purchasing $55 billion in Treasury and mortgage
debt a month to spur recovery by suppressing long-term borrowing
costs, a program the Fed has been gradually tapering this year to
prepare the economy to stand on its own two feet without
stimulus.

While the country has seen some disappointing economic
indicators this year, the economy will continue to recover.

"In recent months, some indicators have been notably weak,
requiring us to judge whether the data are signaling a material
change in the outlook. The unusually harsh winter weather in much
of the nation has complicated this judgment, but my FOMC colleagues
and I generally believe that a significant part of the recent
softness was weather related," Yellen said.

"The continued improvement in labor market conditions has been
important in this judgment. The unemployment rate, at 6.7%, has
fallen three-tenths of 1 percentage point since late last
year."

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